All about FEMA and related aspects

1. Foreign Exchange
Management Act
(FEMA) .

2. FOREIGN EXCHANGE
MANAGEMENT ACT, 1999
• The Foreign Exchange Management Act (1999)
or in short FEMA has been introduced as a
replacement for earlier Foreign Exchange
Regulation Act (FERA). FEMA came into act on
the 1st day of June, 2000.
• An Act to consolidate and amend the law
relating to foreign exchange with the objective
of facilitating external trade and payments

3. Applicability
• It is applicable to whole of India.
• The act is also applicable to all branches,
offices and agencies outside India owned or
controlled by a person who is resident of India.

4. Reasons contributing to
enactment of FEMA.
– Liberal EXIM Policy
– Increased inflow of foreign investment
– Foreign exchange reserves had increased
– Commitment of government to WTO
– Penalty provisions of FERA were very strict

5. Features
• Dealing in foreign exchange.
• Full freedom to person resident in India to hold
or transfer any foreign securities or immovable
property situated outside India.
• A person resident outside India is also
permitted to hold shares, securities and
property acquired by him while he was resident
in India.
• Directorate of Enforcement.

6. Objectives Of FEMA
• To facilitate the external trade and payment.
• To promote an orderly development and
maintenance of the foreign exchange market in
India.
• Regulation of foreign capital in India.
• To regulate employment business and
investment of non-residents.

7. Regulators involved in FEMA
• Reserve Bank of India (RBI)
• Ministry of Industry, Government of India
• Ministry of Finance, Government of India
• Directorate of Enforcement

8. Current account transactions
Section 2 (j) of FEMA defines “Current account transaction”
as a transaction other than a capital account transaction
and includes,-
(i) Payments due in connection with foreign trade, other
current business, services, and short-term banking and
credit facilities in the ordinary course of business,
(ii) Payments due as interest on loans and as net income
from investments,
(iii) Remittances for living expenses of parents, spouse and
children residing abroad, and
(iv) Expenses in connection with foreign travel, education
and medical care of parents, spouse and children

9. Capital Account Transactions
Any person may sell or draw foreign exchange to or from
an authorized person for a capital account transaction
permitted by RBI in consultation with central Government .
RBI prohibits, restricts or regulate the following,
(a) Transfer or issue of any foreign security by a person
resident in India
(b) Transfer or issue of any foreign security by a person
resident outside India
(c) Transfer or issue of any security or foreign security by
any branch, office or agency in India of a person resident
outside India
(d) Any borrowing or lending in foreign exchange in
whatever form or by whatever name called

10. Difference between FEMA and FERA
Points of Comparison FEMA-1999 FERA1973
1. Content There are 49 sections
out of which 12
section relate to
operational part and
rest with penal
provisions.
There were 81 sections
out of which 32 sections
related to operational
part and rest deals with
penalty, appeals etc
2. Nature Basically it is a civil
law.
It was considered as a
criminal law.
3. Applicability The Act applies to all
branches, offices and
branches outside India
owned or controlled by
a person resident in
India
The Act applied to all
citizens of India and to
branches and agencies
outsides India and to
branches and agencies
outside India.

11. .
4. New Terms Capital account
transactions, current
account transactions,
persons, services like
new terms are
introduced.
These terms were not
defined.
5. Penalty Limited to three times
the sum involved if it
is quantifiable
Five times at the sum
involved+ imprisonment
in most of the cases.
6. Object The object is to
encourage external
trade.
The object was to
control, regulate and
prohibits foreign
exchange transactions.
7. Legal Help The complainant has a
full right to take legal
help from a lawyer or
a chartered
accountant.
There was no provision
for legal assistance.
8. Definition of
‘authorised
person’
It has been extended
to include banks,
money changes etc
It was limited in case of
FERA